Nicola Willis readies pro-competition remit for Reserve Bank

Wednesday, 4 September 2024

Finance Minister Nicola Willis says she will send the Reserve Bank Te Pūtea Matua a new policy remit ordering it to do more to promote competition in the banking sector.

Speaking at the Financial Services Council conference in Auckland on Wednesday, Willis set out the next step in the Government’s plan to act on the Commerce Commission’s proposals to inject more competition into the highly profitable banking sector.

She told the conference of life insurers and KiwiSaver companies: “I intend to issue a new financial policy remit to the Reserve Bank this year.

“This will make it clear to the Reserve Bank that the Government expects its policies and actions to put greater emphasis on not only maintaining competition, but growing competition,“ she said.

In its report following the Market Study into retail banking, the commission recommended the Reserve Bank keep competition in mind when setting policy, including setting capital requirements.

Kiwibank chief executive Steve Jurkovich has spoken of his frustration at having to hold more capital against the risk of equivalent homes compared with the big banks.

And Shane Marsh, co-founder of Dosh which is seeking to become New Zealand’s first purely digital bank, has been lobbying for non-banks to be able to say they offer banking services, and also a change to the current requirement that anyone starting a bank to have capital of at least $30 million from day one.

Willis referenced the $30m “barrier” in her speech, and said she would like love to see the use of the term bank “liberalised”.

“When you have got these clever, innovative financial start-ups, who are doing cool things, and then they are told they need $30m of capital just sitting in an account untouchable, it’s a major barrier to entry,” Willis said.

There was risk to loosening prudential rules to increase competition, Willis acknowledged.

“There is always a balance between the two things; yes to competition but always in balance with stability,” she said.

“My contention is the balance has gone too far towards financial stability at the expense of competition,” she said.

That had resulted in households paying too much for banking.

Willis was the first of a parade of three ministers to speak at the conference on Wednesday, with Minister for Regulation David Seymour and Commerce and Consumer Affairs Minister Andrew Bayly speaking later in the day.

Despite the financial services industry being a traditionally safe ground for politicians from the right of the political sphere, the FSC conference is not an entirely safe zone for Government ministers.

Willis was pressed on child poverty, and record numbers of New Zealanders giving up on the country and heading overseas at a rate of about 1000 a week.

She responded that growing the economy and wages was key to solving that brain-drain.

The Government was “resolutely pro-growth, pro-development, and anti-red tape”, she said.

“Our goal is to grow the economy by growing productivity across the board,” she said.

The Government’s plan was to drive growth by reforms across five areas of activity: infrastructure, education, overseas investments and trade, innovation, and regulation.

But she also pointed to optimistic signs that the economy was on the up.

She said she was heartened by the jump business confidence in August.

“Who knows if it will stay there, but what it does tell me is people see the path out. Two-thirds of the respondents in that survey answered before the OCR was cut, so it wasn’t simply a reaction to the Reserve Bank’s decision,” Willis said.

“Increasingly in the conversations I am having around the country, people acknowledge it is tough, but they believe that there is light at the end of the tunnel, and that the path out of the tunnel is increasingly clear,” she said.

“We now have a job to talk our way out of the funk,” she said.

“In the next few months, I’m going to try to be our cheerleader in chief.”

Willis was also asked about one of the key themes of the conference: lifting KiwiSaver contributions.

Many FSC members are KiwiSaver providers, and would benefit financially from higher contribution rates, though they argue New Zealanders are not on average saving enough to get them decent retirements.

Willis said the Government had no plans to make changes to KiwiSaver.